Earned Ep. 30: SuperOrdinary Founder & CEO Julian Reis on Breaking Into the Chinese Beauty Market

Earned is back from summer break and we’re coming in HOT.  For our 30th episode, we sat down with Julian Reis, a serial entrepreneur, and, most recently, the founder and CEO of SuperOrdinary: a wildly successful beauty incubator and global growth partner helping brands like Supergoop!, Drunk Elephant, and Milk Makeup break into the Chinese market. 

We start the episode by discussing the challenges foreign brands encounter competing with domestic brands in China, and which Chinese brands (*cough cough* Perfect Diary) we should pay attention to. Julian then explains the recent changes in China’s animal testing regulations—and what they mean for brands looking to enter the Chinese market—before walking us through the cross-border process, which Julian believes is still the primary channel for brands to focus on. Next, we take a step back and hear about Julian’s career journey, from trading on Wall Street to starting three successful hedge funds, and what inspired him to found SuperOrdinary. Julian describes why China was “the hardest market [he’s] ever had to tackle,” and divulges some of the mistakes he made when building a business in a foreign market without local experience. We discuss which Chinese commerce and social platforms we need to be aware of, before diving into the phenomenon of livestreaming, and whether or not it will gain steam in the U.S. Finally, we learn how SuperOrdinary strategically works with over 40k Chinese KOLs (Key Opinion Leaders), and Julian reveals the most common misconceptions brands have about the KOL landscape and influencer marketing in China. 

We’ve included a few discussion highlights from the episode below, but be sure to check out the full video above, listen to the podcast below, or tune in on Spotify, Apple Podcasts, or Google Podcasts!

The following interview has been lightly edited for concision.

China’s Animal Testing Regulations and the Cross-Border Process 

Conor Begley: So I know one of the bigger shifts that's happening right now is the changes in animal testing, with regards to bringing brands to market in China. Can you talk me through what some of those changes are, and then potentially how that affects the choices of a brand? Whether that means going cross-border or going direct, how does that influence things?

Julian Reis: As of [May 1, 2021], there have been some changes in the process of bringing your products and registering your products into China. Previously, products coming into China would have to undergo some form of animal testing, even though we wouldn't know exactly what they would do according to each of the products. However, as of May the first, there's been a directive that would allow products to enter into China if their ingredients are on the whitelist, [meaning] they've been sanctioned in China. 

So whilst animal testing has gone away, your products’ inkey lists still need to be supplied and registered onshore. That process can take anywhere between six months to two years to register your products, just depending on the complexities. Typically, the ones that can come through are usually the more generic products, but so far today, it's still a challenge to register your products because many of the ingredients still aren't allowed, and obviously complex products like SPF and things like that are much more challenging.

So the routes to get into China still in my view haven’t changed. Cross-border is still the primary channel that we should focus on, because the consumer's already been trained in their mind that these products are coming from overseas and these products are authentic, they are well-recognized, and they're coming directly from the brand, because to open up these channels on Alibaba, you need to have all the certificates and authentication to be able to sell those products in the local markets. 

Conor Begley: What are the steps in a cross-border process? If I’m a brand and I want to sell in China, whether it’s with SuperOrdinary or on my own, how does that work? 

Julian Reis: The cross-border channel was set up to allow brands to enter the Chinese market without having to register [their products] onshore. The Chinese government set up this channel so that consumers can buy [foreign] products, but there's a certain cap on how many products you can buy per year. I believe it's around just under 5,000 US dollars. So there is only so much that can go through that channel. 

So what happens is there are these bonded warehouses that are set up throughout China where your products will be shipped into, and then only when the consumer purchases that product online does it get picked and packed and sent directly to the consumer. But the consumer would have to enter in the equivalent of your passport details so that everyone can track what's been bought by who and how much. It's a nice way for the consumer to first discover your product because they know that when they go to Tmall Global or one of those cross-border channels, they know that it’s a foreign product. 

Typically, the consumer knows what they want to buy because it's quite a lot of effort, so when they go and find the Supergoop! Unseen Sunscreen, they've probably heard about it through Austin Li, and they know where to go and collect it from. So that's how the process works. At SuperOrdinary, as we build these brands up through a variety of channels, the ones that you’re obviously most familiar with are the livestreaming and the influencer channels, we'd see a very strong correlation in understanding how that process works. 

“Working with KOLs in China requires a lot more education”: Julian Reis on China’s KOL Landscape

Conor Begley: SuperOrdinary works with tens of thousands of KOLs (Key Opinion Leaders). Talk me through the tactics that you utilize there. How big is [your KOL] team? Do you guys gift them, do you run affiliate programs or events, how does that function? 

Julian Reis: Yeah, it's definitely a work in progress. Our [KOL] team is close to 20 people now that work with over 40,000 influencers either directly or through agencies. We started four years ago by trying to understand how to pick an influencer, and I think what we've realized was that every single day, there are so many new influencers entering the market and you can never keep tabs on them because the market's always changing. 

And then the strategy, which you've seen in probably a thousand pitch decks, of a pyramid of the macro-influencer, the mid-tier influencer, and the smaller KOL is not dissimilar to China as well. The micro-influencer is really where a lot of authenticity is found. And what I found in beauty is that it’s very much segmented across product categories. So someone who talks very strongly about a toner may not talk about a moisturizer. I think what we've done at SuperOrdinary is we’ve collected a lot of information about who's talking about what, what's the return on investment from that influencer, and how those influencers change over time, too. 

We've managed to collect a lot of information, so when we do work with a brand, what happens is we have 24 brands in China that we work with, and our influencer team of 20 people gets RFPs every single day from each one of our brand leaders, who say, “I'm launching this new vitamin C serum, and I need to have a strategy that will allow us to grow this brand to X over the next six months.” So our team will go out and really think carefully about the strategy and how many influencers we will be using. It's a pay-to-play society, so there's no free seeding programs. So unfortunately, it is very expensive, and those prices change daily, and the commissions that these influencers ask for are very aggressive, too. It's not uncommon that they will ask for 30-40% of revenue, which really makes it challenging. But, if these influencers convert, it's definitely worth it. 

So livestreaming in my view, I put that into the same bucket because it's creating awareness. What you're trying to do is think carefully about what kind of growth you're looking for in your brand, and then, is that growth sustainable? If you do $10 million in year one, is it realistic that you do $20 million in year two? Brands can't grow without strong brand marketing behind them, so that people can feel that connection with that brand. So it's almost better to take the slow approach sometimes in a market like China, because that will create much more longevity. Because if you want big growth, be prepared to invest very, very heavily behind the brand. It's not uncommon that we're spending 30% to 40% in marketing.

Conor Begley: You talked about this pay-to-play landscape, and I’ve heard about that before. It’s different culturally and with any work you do together, there’s expected to be some kind of compensation involved. What are some of the other big misconceptions that brands come in with and say, “This is how I did it,” but KOLs actually don't operate that way in China? 

Julian Reis: The biggest misconception is when a brand comes to me and says, “I do this much revenue in the U.S. with 300 million people, and China has 1.5 billion, so the total addressable market is that much bigger so I should be doing this.” That's the biggest misconception. But I would say that working with KOLs in China requires a lot more education because when you send them products, remember they don't know anything about your brand in the U.S. They have no access to Instagram, they have no Facebook. They're getting this product in their hands and they're just like, what do I do with it? Why is it so special? They don't know if it could be the best face cream in the world, or it could be something that's just been concocted recently. 

So education takes a long time. I think what we've found is that the messaging has to make sense to [the KOLs] so that they can repeat it time and time again. So we have to work very carefully in creating those taglines, the hashtags, the naming conventions of your product, so that it resonates with the local consumer. 

So SuperOrdinary really focuses on making sure that when we do deliver [the product] to the KOL, they do know exactly the three bullets that they have to say. You have to tell them how to take the photo, what to say, when to say it, and when to post, and only if they do all those things do they get paid. So it's much more hand-holding in that market. 

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You can watch the entire interview here, or listen to the full episode on Spotify, Apple Podcasts, or Google Podcasts. To catch up on our other 29 episodes, featuring leaders from brands like ColourPop, Gymshark, Summer Fridays, and Ulta Beauty, visit our Earned Podcast page.